Asian petrochemicals reel; coronavirus pandemic to batter global demand

Author: Nurluqman Suratman

2020/03/12

SINGAPORE (ICIS)--Asia's major petrochemical markets weakened on Thursday, tracking heavy losses in upstream energy and regional stock markets after the World Health Organization (WHO) declared the novel coronavirus a pandemic.

Global efforts to contain the unabated spread of the virus are expected to significantly hit consumer demand which does not bode well for petrochemicals.

In the naphtha market, the crack spread - a measure of its refining margin – remained at lows of around $50/tonne, levels not seen since September 2019 with sentiment remaining mixed and cautious.

The market structure flipped back into a backwardation, with the intermonth spread between H2 April and H2 May at $6.00/tonne as of 12 March. The spread was briefly at a contango following the plunge in crude oil prices at the start of the week.

For paraxylene (PX), discussions for May fell sharply in early trade mirroring the decline in downstream purified terephthalic acid (PTA) futures, which tracked the steep drop in crude oil prices.

Falling PX and crude prices weighed on offers for polyethylene terephthalate (PET).

At 06:54 GMT, Brent crude oil was down $1.38/bbl at $34.41/bbl, while US WTI was down by $1.36/bbl at $31.62/bbl.

Oil prices extended losses from the previous session after Saudi Aramco was asked by the Saudi’s Ministry of Energy to boost its production to 13m bbl/day from the current 12m bbl/day.

In the 2-ethylhexanol (2-EH) market, spot discussions in east Asia weakened on Thursday as sentiment wilted following the latest downtrend in upstream markets.

For dioctyl terephthalate (DOTP), spot prices in China have weakened this week as domestic buyers shy away from the market.

Heavy losses in crude prices have also put spot offers for southeast Asian maleic anhydride (MA) imports under pressure amid poor demand prospects.

In the ethyl acetate (etac) market, there are concerns that plunging crude prices could eventually hit the solvents sector.

The WHO declared the coronavirus as a pandemic late on Wednesday as the number of coronavirus cases in the US and Europe continued to spike.

The rapid increase in confirmed coronavirus cases in Europe is expected to raise demand for PET products in the short term, ICIS analyst Rachel Qian said.

"Consumers concerned about shortages and isolation caused by coronavirus are purchasing bulk loads of products packaged in PET, such as water, food and hand sanitizer, thereby increasing sales of preforms, for example," Qian said.

"But fibre consumption, which take a larger market share of PET, is still expected to face challenges on fast growing recycling market and increase in environment awareness," she said.

For China, a pandemic will weigh further on demand for petrochemical products and this add additional pressure the country’s export market, Qian said.

"China’s textile and clothing industry targets a 30% share of exports, with major target market including Japan, Europe, US, may be hindered by the coronavirus outbreak," she said.

To date, the global death toll from the flu-like epidemic stood at above 4,600 with confirmed cases at above 120,000 across more than 100 countries.

Italy, Iran and South Korea have the highest death toll and largest number of infections outside China.

Country Confirmed  Coronavirus Cases
(as of 03:13 GMT on 12 March)
China 80,932
Italy 12,462
Iran 9000
South Korea 7,755
France 2,284
Spain 2,277
Germany 1,966
US 1,312

Source: WHO, Johns Hopkins University

ASIAN SHARES TRACK GLOBAL ROUT
Asian equity markets were sharply in the red in afternoon trade on Thursday, with Japan’s benchmark Nikkei 225 index down 4.4% at the close of trade.

Among other major producers, Japan's Asahi Kasei was down 6.25%, while South Korea's LG Chem was more than 6% lower.

Company/Stock Exchange (07:00 hours GMT) Change (%)
Nikkei 225 (Japan) -4.41%
Asahi Kasei Corporation -6.25%
JXTG Holdings, Inc. -3.61%
Mitsubishi Chemical Holdings Corporation -4.59%
Mitsui Chemicals, Inc. -3.74%
HANG SENG INDEX (Hong Kong) -3.54%
Sinopec Shanghai Petrochemical Company Limited 0.00%
PetroChina Company Limited -4.40%
KOSPI Composite Index (South Korea) -3.87%
OCI Company Ltd -9.64%
SK Innovation Co., Ltd. -5.71%
LG Chem, Ltd. -6.44%
Lotte Chemical Corporation -5.41%
Hanwha Corporation -6.48%
TSEC weighted index (Taiwan) -4.33%
Formosa Petrochemical Corporation -4.46%
Nan Ya Plastics Corporation -3.77%
Formosa Chemicals & Fibre Corporation -3.10%
SET Index (Thailand) -8.79%
PTT Global Chemical Public Company -10.08%
IRPC Public Company -5.61%
Indorama Ventures Public Company -11.86%
Thai Oil Public Company -6.80%
STI Index (Singapore) -2.85%
Wilmar International Limited -6.17%
Olam International Limited -2.44%
FTSE Bursa Malaysia KLCI -1.45%
SSE Composite Index (Shanghai, China) -1.52%

"Financial markets are anxiously looking to Washington to move on stimulus to shield the economy from the brunt of the coronavirus impact," Singapore's UOB Global Markets & Research said in a note.

US Treasury Secretary Steven Mnuchin on Wednesday said that the White House is examining tax relief measures, loan guarantees, reimbursing workers for lost pay, aid to small and mid-sized businesses.

Global governments are scrambling to prepare fiscal stimulus packages worth billions of US dollars as cushion from the economic havoc being wrought by the newly-declared coronavirus pandemic.

All eyes also will be on the European Central Bank (ECB), which is expected issue a 10-basis point cut to policy interest rates and changes to bank lending.

ECB President Christine Lagarde has reportedly said the EU could face a financial crisis similar to the global crash of 2008 if governments do not coordinate to tackle the spread of the coronavirus.

"To have any real impact on the economy, the only thing the ECB can do is inject liquidity and offer backup to bank loans targeted to people and businesses most in need," London Capital Group said in a note.

"If the ECB is looking to prevent a negative feedback loop from the turmoil in financial markets hitting the economy, with rates at the zero bound, the only solution is more quantitative easing," it said.

Focus article by Nurluqman Suratman

Additional reporting by Samuel Wong, Melanie Wee, Hazel Goh, Joson Ng, Helen Yan, Lim Ai Teng and Helen Lee

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.

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